OG&E officials say EPA ruling will raise rates

Oklahoma Gas & Electric Company on Tuesday (Sept. 3) joined Oklahoma Attorney General Scott Pruitt in challenging a ruling by the Denver-based 10th Circuit Court of Appeals that would allow the Environmental Protection Agency to impose strict pollution regulations on the state.

OG&E officials contend the EPA mandate will result in higher costs for all customers in the utility’s network.

Residential customers as a group would likely face the bulk of increased costs. Operating revenue for OG&E for the first half of 2013 from residential sales was $402.3 million, or just short of 40% of the total operating revenue of $1.03 billion. Commercial power sales were 24.46% of total operating revenue.

In a telephone conversation from the company's Oklahoma City headquarters, Spokesman Brian Alford said the EPA was not allowing the state to implement its own plan to reduce sulphur dioxide emissions as required by the Clean Air Act.

"Each state was required to put together a plan to outline how it would reduce its emissions," Alford said. "Oklahoma put out a plan that continued to use coal (in power plants), but at the same time used more natural gas and other technology to remove emissions."

The EPA rejected the plan, which was meant to comply with the CAA's "regional haze rule."

The state fought the EPA's actions, but a 2-1 panel of appellate judges on the 10th Circuit ruled in favor of the EPA. Now the state is wanting a full hearing before the 10-member appeals court.

“Our appeal for a rehearing before the full 10th Circuit gives us an opportunity to continue the fight to preserve the state’s ability to create an Oklahoma solution to address regional haze,” Pruitt said in a statement. “Regional haze is about improving visibility, not about health. The Clean Air Act clearly gives states a primary role in implementing regulations to address regional haze. Oklahoma leaders crafted a commonsense plan to meet the goals of the Clean Air Act without imposing unnecessary rate hikes on Oklahomans. The EPA was wrong to ignore the Oklahoma plan and impose a federal plan.”

Alford said implementing the EPA's plan instead of the state's plan would impact not only OG&E, but also customers in Arkansas and Oklahoma who depend on OG&E for power.

The reason customers would be affected is due to the EPA's desire to put in place rules that would require the company install scrubbers, or emission control technologies, at four of the company's five coal-powered units, Alford said.

"We estimate the financial impact of that to be $1.2 billion," he said. "Our position is that the state of Oklahoma put forward a plan that achieves the same outcomes but for far less cost to the customer."

Coal is a large part of the company’s power production. According to the OG&E’s recent 10Q filed with the U.S. Securities and Exchange Commission, production cost 3.218 cents per kilowatt hour for the six month period ended June 30, higher than the 2.701 cents in the same period of 2012. Of that cost, 2.295 cents was from coal power, above the 2.26 cents in the same period of 2012.

Should the appeal not be heard before the 10-member appeals court, or should the hearing not result in a favorable outcome for the state and OG&E, Alford said customers are the ones who will be on the hook for the installation of the scrubbers at the company's power plants.

"If we are unsuccessful at the 10th Circuit, it's like the clock will begin running for completion of the emission control technology, which is 55 months," he said. "We would expect over the course of that 55 months is when customers would see those increases. Our goal would be to have incremental adjustments over that time horizon versus rate shock at the end of 55 months."

OG&E supplies power services to over 800,000 customers, with about 80,000 living in the state of Arkansas, Alford said.

While no timeline for a decision has been reached, Alford said he expects a decision "in the not-to-distant future – sometime in the next several months."

Investors have not yet backed away from company share, although the price has dipped in the past three weeks. Shares of OG&E closed Wednesday at $35.16, up 39 cents. During the past 52 weeks the share price has ranged from a $39.55 high to a $26.84 low.